- Oliver Blume says overhead costs are more than 30 percent higher than those of comparable rivals.
- The frequently cited figure of 50,000 additional job cuts is not a fixed target.
- Four German plants face an uncertain future.
Volkswagen is staring down another brutal restructuring, and Oliver Blume isn’t exactly sugarcoating the situation. In an internal memo seen by Reuters, the VW Group CEO warned employees that “the situation is more than critical” as the company prepares for yet another round of painful cost-cutting measures.
The problem isn’t simply that the German automotive empire needs to sell more cars. Its cost structure is putting it at a serious disadvantage against rivals at a time when competition is becoming absolutely fierce, especially with the global rise of Chinese brands. According to the ex-Porsche CEO, overhead costs remain more than 30 percent higher than those of comparable companies.
That’s a major problem for an automaker of this scale in these troubled times. VW’s operating margin is currently below four percent. Blume considers that respectable given the market conditions, but says it’s nowhere near enough to fund its future sustainably.
Photo by: Motor1.com
“The frequently cited figure of around 50,000 jobs worldwide is not a fixed target.”
Reports about doubling layoffs have been making headlines for weeks, but Blume wants employees to understand that it isn’t a final objective. Instead, it’s a theoretical calculation based on how many positions VW would need to axe to close the cost gap with competitors without changing labor costs. In other words, the number is meant to illustrate the scale of the problem rather than serve as a definitive headcount for layoffs.
It’s potentially not all doom and gloom, as Blume told staff that no decision has been made to shutter the four German plants at risk of closure in the 2030s. For now, Zwickau, Emden, Hanover, and Neckarsulm still have a future. However, if underutilization becomes a serious problem, that could change over the next decade.
Aside from potentially eliminating even more jobs and closing factories, the VW Group is downsizing in other ways. It plans to simplify its lineup by cutting up to 50 percent of its current models while slashing available options by 75 percent. That tells you everything you need to know about how the company grew too large and too complex for its own good.
Photo by: Volkswagen
Motor1’s Take: VW is finally confronting a cost structure that has made it increasingly difficult to compete, particularly against leaner Chinese automakers. A theoretical calculation of 50,000 additional jobs being eliminated is still staggering, even if the final figure ends up being substantially lower.
VW isn’t simply trying to survive a bad year. It’s trying to reinvent itself while facing some of the toughest competition in its history. Blume’s warning suggests the company knows that doing nothing isn’t an option.
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